M&As Come With Lots of Questions. How Insurers Can Maintain Stability for Clients and Brokers : Risk & Insurance

Insureds may feel uncertainty when their carrier announces an M&A. Stability and transparent communication can help.

Insurance mergers and acquisitions may have slowed post-pandemic, but they are sure to recover and are already showing signs of doing so. In 2023 there were 537 insurance M&A deals, totaling $28.9 billion, per a 2023 Deloitte report. The data was compiled from U.S. and Bermuda-based companies making acquisitions globally. The authors said they expected M&A activity to increase markedly in 2024.

Much of this activity happens in companies that serve the middle market space, which accounts for about 200,000 private businesses in the U.S.

These deals obviously come with questions for insureds: Will the acquiring company maintain my product not to mention my underwriting team? Will I be able to maintain the same coverage terms and premium prices I had previously?

Others may have questions about the transition period. Combining companies can be tricky, especially when technology is involved.

“The level of risk depends on the company’s acquisition strategy. If the plan is to combine the two companies and save money by transitioning everything to one company’s systems, there are significant execution risks,” said Mark Lange, chief middle market executive, Arch Insurance North America.

Lange is familiar with the acquisition process, especially as it concerns middle market business space. In 2024, Arch Insurance acquired the U.S. MidCorp and entertainment insurance businesses from Allianz. “We’re not just maintaining a carrier in the middle market; we’re investing in it to make it better,” he said.

“As distribution partners consider the rationale behind Arch’s recent acquisition, it’s important to understand that our plan is not to merge two entities or extract cash from the existing business. Instead, we’re investing in the acquired business to enhance its capabilities, which is an exciting message.”

Though the process can be challenging, many insurance companies find mergers and acquisitions advantageous. The key to success often lies in properly communicating with customers, so that they are prepared for the changes that follow a merger or acquisition.

Will Coverage and Products Be The Same?

Mark Lange, chief middle market executive, Arch Insurance North America

When an insurance company announces a merger or acquisition, their insureds will naturally have concerns about how the impending changes affect their coverage and cost of risk. For instance, Arch’s acquisition of Allianz MidCorp aims to boost its ability to deliver innovative solutions, specialized expertise and improve speed to market when it comes to services and response time.

“The biggest concern arises when the portfolio is moved to another middle market platform with different products, systems, coverages, and pricing mechanisms. Reunderwriting the portfolio with these changes may lead to displacement and disruption in the marketplace,” said Vinko Markovina, executive vice president, MidCorp, Arch Insurance. “The terms, conditions, and pricing might change,” Markovina said.

Insureds will want to carefully review their policies to ensure they have the coverage they need pre and post-merger.

“It’s crucial for buyers to understand these coverage differences, including any gaps or enhancements, to ensure they are getting something comparable to their previous policy,” Markovina said. “Buyers would want to know if the new company will continue to offer the same products with the same capacity as before.

Who’s On My Team?

Vinko Markovina, executive vice president, MidCorp, Arch Insurance

In addition to concerns about coverage, pricing and terms, insureds may wonder if they will have the same underwriting team or if the company will continue to work with the same distribution partners after the merger or acquisition. Many people associate mergers and acquisitions with layoffs, though that isn’t always the case, and insureds will want to know about the stability of their risk management teams, such as underwriters and distribution partners, moving forward.

“They would want to know if they will be working with new underwriters or distribution representatives, and how that might impact their business interactions,” Markovina said.

That may be particularly true as it relates to distribution.

“Brokers, like the rest of us, don’t appreciate turmoil. When an acquisition is announced, it can create significant uncertainty for them,” Lange added. “They may worry about losing a market, dramatic changes in underwriting appetite, or having to work with new underwriters and build relationships from scratch.”

Staffing or distribution partner changes will likely depend on what the purpose of the merger or acquisition was. If the companies merged to eliminate redundancies, then insureds can expect more changes.

“If the goal is to cut costs significantly, everyone is aware of the impending changes, leading to concerns about job security and resulting individual decisions about whether to stay or leave,” Lange said.

“This uncertainty extends to the marketplace, with brokers questioning whether their underwriter will remain, whose underwriting guidelines will prevail, and how the changes will impact them. The challenges that arise depend heavily on the model and rationale behind the acquisition.”

On the other hand, if they merged to grow their businesses, most people and partners will likely stay on board.

“Instead of reducing roles and resources, we intend to develop more to support and grow the business,” Markovina said of Arch’s recent acquisition. “It’s a very different model and philosophy compared to the usual approach of overlapping roles and cost-cutting measures,” Markovina said.

“The impact of a merger or acquisition on employee retention largely depends on the financial model and rationale behind the deal. In our case, the acquisition was aimed at expanding into a market where we didn’t have a strong presence, so there wasn’t a ‘who stays, who goes’ model since we were adding capability to the company,” Lange added.

“This strategy also differentiates how we do business with our partners. In our case, Arch doesn’t just offer a product, but an ongoing partnership with brokers and working closely to ensure a seamless experience for their clients.”

Communication Is Key

With all this uncertainty, it is important for companies considering mergers and acquisitions to carefully consider how they will communicate these changes to their staff and clients. Strong, consistent communication will reassure everyone during the integration process,  which in turn will convey a uniform message of purpose and stability.

“Communicating frequently and transparently with customers is crucial for success during a merger or acquisition,” Markovina said. “The entire organization should be proactive in fielding calls and communicating with key brokers and clients.”

Maintaining consistent leadership is one way insurers can communicate stability during M&As.

“Leadership continuity is highly meaningful in any acquisition,” Lange said. “It helps reduce uncertainty and provides stability for the team during the transition.”

It’s important to remember that businesses are constantly evolving. Mergers and acquisitions need not be stressful. If companies communicate clearly, insureds and brokers will feel better about the acquisition process.

“Transparency is key, even if changes are anticipated. Explain what will be changed, when it will happen, and why,” Markovina said. “Businesses are always transforming, so it’s essential to communicate upfront and maintain strong relationships throughout major changes like mergers and acquisitions. The goal is no surprises for the customer.” &

Courtney DuChene is a freelance journalist based in Philadelphia. She can be reached at [email protected].

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